Landbouwbedrijf – Tax Court reiterates that the Minister of National Revenue is not precluded from challenging a taxpayer’s previously-accepted filing position

Published by Milan Vukovic

The Tax Court’s decision in Landbouwbedrijf Backx B.V. v. Canada, 2021 TCC 2 is a reminder to taxpayers that just because their filing position in a tax return is accepted by the Minister of National Revenue (the “Minister”), it does not mean that the Minister or a court cannot later arrive at a different conclusion. The bulk of the Tax Court’s judgment dealt with technical issues regarding deeming provisions in the Income Tax Act (Canada) (the “Act”) and the Canada-Netherlands Tax Treaty (the “Treaty”). Notably, the appellant also argued that the Minister was precluded from reassessing it as a Canadian resident on the basis that the Minister had previously assessed it as a non-resident. In rejecting this argument, the Tax Court underscored the limits of Canada’s self-reporting tax system.

The Facts

The basic facts in Landbouwbedrijf were uncontroversial. The appellant, a Dutch limited liability company, was incorporated by a couple who were resident in the Netherlands at the time of incorporation. In 1998, the couple immigrated to Canada, resigned as directors of the appellant, and appointed a sibling resident in the Netherlands as the sole director. The couple then purchased a dairy farm in Ontario in partnership with the appellant. From 1998 to 2008, the appellant filed tax returns as a non-resident of Canada and paid taxes on its share of the partnership income.

In 2009, the appellant disposed of its partnership interest and claimed that it was exempt from Canadian income tax on the basis that the partnership interest was “treaty-protected property” (as that term is defined in subsection 248(1) of the Act). The Minister initially accepted this position and even acknowledged that the purchaser was not required to withhold any tax pursuant to subsection 116(5) of the Act. However, the Minister subsequently reversed her position on the basis that the appellant was a resident of Canada. As such, the appellant was reassessed for tax on the capital gain realized on the disposition of its partnership interest. Notably, the reassessment was issued after the appellant had filed a tax return for the year as a non-resident, and the Minister had assessed the appellant on that basis.

Procedural History

In a decision released in 2018, the Tax Court held that the appellant was a resident of Canada in 2009 on the basis of the well-established central management and control test. In particular, the record showed that Canadian-resident shareholders made all substantive decisions in respect of the appellant, and that the sibling-director resident in the Netherlands merely carried out clerical duties. Accordingly, the Tax Court referred the matter back to the Minister for reassessment on the basis that the appellant was liable for the capital gain as a Canadian resident .

The appellant appealed the Tax Court’s decision. On appeal, the Federal Court of Appeal found that the Tax Court had committed no palpable and overriding errors in finding that the appellant’s central management and control in 2009 was in Canada. However, the Federal Court of Appeal held that the Tax Court erred when it concluded that the Treaty did not have a direct bearing on the tax appeal, and further that it had not properly considered the application of subsection 128.1(1) of the Act (discussed below). Therefore, it set aside the initial judgment and referred the matter back to the Tax Court for reconsideration.

When the matter was reconsidered by the Tax Court, neither of its previous errors ultimately changed the outcome for the appellant. However, the Tax Court’s response to the appellant’s argument that the Minister was “estopped” from reassessing the appellant as a resident after having already assessed it as a non-resident for the year under appeal (and all prior years) is noteworthy.

The Decision

When a corporation becomes a resident of Canada, subsection 128.1(1) of the Act deems the corporation to dispose of and reacquire all of its properties at fair market value. As a consequence, the cost base of the property to the corporation is essentially reset at fair market value as of the immigration date.

The appellant argued that since the Minister had assessed it as a non-resident for the 1998 to 2008 taxation years, the earliest this provision could apply was immediately prior to 2009 (i.e., shortly prior to the sale of its partnership interest). On this basis, the appellant alleged that the adjusted cost base of the partnership interest would effectively be the same as its sale price, such that there was no resultant capital gain.

Central to the appellant’s position was the argument that their residency for the 1998 to 2008 taxation years was not in dispute, and had been finally determined by the Minister in separate assessments that were not reassessed. The appellant argued that the doctrine of issue estoppel precluded an inquiry or re-determination as to whether the appellant was a resident of Canada during those years.

Issue estoppel is a common law rule which prevents a party from re-litigating an issue that has already been decided in a previous proceeding. In this case, the appellant argued that issue estoppel made the Minister’s assessments for the previous taxation years final and binding.

The Tax Court rejected that argument, emphasizing that it is settled law that the Minister is not estopped from reassessing or making an additional assessment of a taxpayer’s liability, subject to a statutory limitation period. Moreover, the Court held that a taxpayer’s filing position accepted by the Minister, as evidenced by the notices of assessment for the 1998 to 2008 years, does not prevent the Court from reaching a different conclusion.

In light of the above, the Tax Court found that the evidentiary record was not limited to the 2009 taxation year, and that the evidence supported the conclusion that the appellant became a resident of Canada prior to the acquisition of the partnership interest in 1998. Thus, the deeming rules in subsection 128.1(1) applied in 1998 – not immediately prior to 2009 as argued by the appellant – and the Minister’s assessment of the capital gain realized in 2009 on the disposition of its partnership interest was therefore valid. The Tax Court dismissed the appellant’s appeal.


While the decision in Landbouwbedrijf may be frustrating for taxpayers and advisors alike (which the Tax Court partly recognized in its decision), it is well-established law that a concession made in one year does not preclude the Minister or a court from taking a different view in a different year. In other words, taxpayers cannot rely on an assessment issued by the Minister in one year to insulate themselves from a challenge to the correctness of a filing position in a subsequent or preceding year. This case reinforces the need for taxpayers to assess their obligations under the Act deliberately and carefully in each and every year, especially when addressing core issues such as residency.